A Comment -- General Comments From an Expert (A Commentary)

An ETF that can be a held for 30 or 40 years? You could look at Vanguard FTSE Cda All Cap (VCN-T) or the iShares S&P 500 (Cad Hedged) (XSP-T) for the US side.

Markets. He looks at the market internals price and volume data as well as a number of different economic indicators. Currently they are mostly out of the US including the leading economic indicators, the ISM, etc. and are still very positive. LEI is another indicator he likes to look at for the 18 moving average, and whenever LEI crosses below that, it has been a very strong positive sign that we are going to see a recession. He is still not seeing anything like that. The ISM is also very strong. Manufacturing isn’t super strong, but the services side is very strong, which is a big part of the US economy. He is defensive and cautious right now. In June, some of the market indicators turned negative, so he started to raise his cash position and is about 30% in cash now. If you are looking at things from a 3 year timeframe, right now you could be picking away.

Big banks or insurance companies for a 3-5 year hold? This is a tough one as both have positive and negative traits, especially over that time frame. In a 3-5 year time frame, you would expect interest rates to be a little bit higher, which will really drive insurance companies. On the flipside, the banks are also going to see nice business. If it were him and his money, he would probably look at the banks, especially over a 5 year time frame.

Markets. With energy being where it is and the mining area still behind, there is just not enough fuel in the tank for it to be interesting to him. Because he is a global manager, and Canada being only 3%, he has much broader options open to him with what he can do with clients’ portfolios. In energy there is a lot of inventory. Technology has totally changed the ball game. There is nothing particularly special about what we have in energy, and there is no scarcity factor.

An ETF that will allow overweighting Frontier Markets? A Frontier Market is usually a low quality emerging-market, so you are really walking out on the risk scale at that point. Emerging markets, and by extension Frontier Markets are a certain part of asset class that doesn’t really lend itself to indexing. There are too many countries, too many cultures, too many laws and too many industries. The ETF side just doesn’t work in this area. They are not homogenized.

Markets. The Fed, by not raising rates and mentioning China as a concern, has really confused the market rather than giving it some certainty and clarity. He was looking for a very slow rate hike increase, which would indicate the Fed was confident growth would continue. He tries to ignore the large economic fundamentals, such as China. He is a stock picker. If he can find good companies that are trading of valuations that are attractive, he is generally going to own them through the cycle. Always tends have a lower proportion of companies exposed to oil and gas. Oil prices will rise over time as the supply correction eventually reasserts itself.

Canadian Banks? They face a bit of a challenge in earnings growth over the next year. Dividend yields are anywhere from 4.5% to almost 5% across all the large tier banks. The dividends are well covered. Having exposure to banks at this time, on a risk/reward basis, is quite attractive.

Markets. Sentiment, since the middle of the summer, has been pretty weak. He doesn’t know if there was a perfect outcome the Fed could have done to appease markets. In bad markets, even when good things come out, things can still go down. There have been a lot of US companies recently, who report off season, that have been reporting good numbers and yet the stock is still getting crushed. Thinks the Fed is putting out a message that they are not going to exasperate things and are going to wait for sentiment to improve a little. As we get into earning season, any expectations that might have been too high a few weeks ago, expectations are quite low now. As we get out of this volatile season, we are going to start to see improved prices.

Energy. Thinks we are getting close to a bottoming process. Until North American production rates start pulling back, we are not going to see an end to the oversupply of oil. We are now starting to see that. In July, production rates were around 9.5 billion US barrels a day and are at around 9.1 now. Suspects that in the coming few weeks, they are going to make their way below 9 million barrels a day. This is one of the key ingredients for a bottoming process, but also we absolutely need to see the Iran nuclear deal get settled. Feels Iran has a bunch of oil at sea waiting to hit market, and he thinks we need to get Iran back into the global producing in an unabated market, before we really see that bottom.

Europe. The early part of this year until mid year, when this emerging markets and China crisis erupted in the markets, the European markets were some of the best stock markets of the year. A big part of that optimism and the movement in those markets was that the economies there have started recovering, so the QE that Draghi has done, and the weakness in the euro itself, has really helped activity. Thinks it will continue to improve despite all the emerging-market concern.

Markets. What happened to Volkswagen this morning will badly damage their brand. If Money Managers did this, it would have huge reputational risks. Technically Volkswagen should bottom out about where it is today, but this news may increase the downturn. He thinks it will be a while for this one and it is not the day to step in a buy it. The Fed could not come to a consensus on when to raise rates. This decision on when and how to raise rates will have a huge impact on world economies.

Are we entering a depression? No. The liquidity we have seen has stabilized things. Right now the deflationary forces of the global QE and the aging population are far greater than inflationary pressures.

Educational Segment. Opportunity and Event Risk. This week there is an election in Spain. The US debt ceiling in October will be a market moving event. How do you navigate around them? His current road show addresses this. He addresses events by moving in and out of equities. When an event occurs he goes back to see similar events and sees what happens to look for opportunities.

Markets. Valuations have come down a bit on this recent pullback. He has been buying a bit in the last little while in Canada and the US. The consumer discretionary and tech spaces interest him. What people save on gas goes into discretionary spending. There is a lag effect and that is just coming in to play now. Larger, more stable REITs are more challenged as to growth so he is looking at smaller ones. Precious metals have some high quality companies that have been beaten up fairly badly.

Drip Programs. If you want the income, then take the money. If you don’t need it, then you can reinvest in the company going forward without brokerage charges. You have to want to buy the company through thick and thin, however.